Slaying a New Dragon- Will it be Taxation or Deregulation?

By Garreth Bloor

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For the Reagan era it was taxation – is it deregulation today?

When President Trump invited a group of business tycoons to the White House the number one complaint constraining further employment was not tax, it was regulation: “Get the government off our backs,” rung out unanimously among executives present. In Trumponomics, free market veterans Stephen Moore and Arthur Laffer recount the meeting and offer a review of some of the key issues around deregulation efforts as they see it – from the vantage point of within President’s Advisory Council.

The effects of regulation are rarely quantified. So too are the losses in the form of unrealized growth, tantamount to the lost foregone imposed by undue undue tax burdens. Over-regulation can even eclipse massive corruption costs in parts of the developing world in terms of unrealized growth.

The Mercatus Center at George Mason University has undertaken two fresh measures to address the challenge of overregulation in the United States. The first is quantifying regulation quickly and effectively. The second is tackling the state-level burden, where regulations are even more numerous than in the federal sphere. Both initiatives saw the group acclaimed on this year’s short list for the Templeton Freedom Award at the recent Atlas Liberty Forum in New York City.

Quantifying the costs, creating space for reform

The Program for Economic Research on Regulation uses ground-breaking RegData software to demonstrate how reducing state-level regulations can have a measurable improvement on economic growth. Regdata is a Mercatus-developed software program able to assess immense regulatory codes for the first time. And it is proving valuable in areas like state-level reform.

State Level Leviathan?

“Reducing a state’s regulatory burden is critical for driving economic growth,” argues Patrick McLaughlin, a director of the policy analytics project at Mercatus. During an address at Atlas he stated that “(s)tate regulatory codes sit on top of rules created at the federal level, making it impossible for any one person to make sense of this massive system of regulations. Quantifying the amount of regulation in each state is an important first step for eliminating unnecessary rules burdening individuals and small businesses.”

Using RegData, the state of Kentucky reviewed over 2,300 regulations, repealing 453. An additional 424 were amended and hundreds are still under assessment.

Counties and Local Councils

A third area into which Mercatus’ efforts have expanded include city and local councils. As a former city council economic commissioner in South Africa, quantifying outdated legislation was vital to reform. Over 330 pieces of legislation were eliminated when I had the opportunity to serve a four-year term. The response was almost unanimously favourable from the public, while providing vital lessons on the method and nature of effective reform. Growth followed with a 48% year-on-year rise in the value of building plans completed when measured 12 months after the repeal.

One the one hand, politically, the official opposition highlighted the reforms (shredding volumes of regulations) as a Workers’ Day message: lets create jobs and only protect existing workers.

Detractors questioned not the measure itself, but the fact that there could even be so many regulations in the first place. To the surprise of many, hundreds and thousands of regulations exist beyond what is commonly perceived to be the case.

Furthermore, the case for deregulation is especially urgent when regulations are predicated ideas of spatial planning that resemble command-and-control ideas of economics, rather than a contemporary Hayekian view of dynamic markets. At its extreme, apartheid spatial planning is a case in point; most of the hundreds of pieces of legislation repealed in the case above dated back to an era where this form of national socialism was the presumption behind city and town planning regulations.

Reflections: Toward Two-Fold Reforms in Deregulatory Initiatives

Too often, deregulation is simply treated as making compliance easier (think government one-stop shops) instead of removing the red tape inherent in regulations.

Two key elements of real reform involve the method and nature of repeal once the barriers have been identified. Method should involve passing new legislation which automatically removes outdated regulations in great numbers. This approach is better – allowing for the repeal a compendium of redundant legislation in one process that concludes with the passage of a new bill, by-law, policy or a mix thereof. The method focuses efforts on positive reforms and the actual legislation proposed to replace (often hundreds of) redundant articles of legislation. In my experience, it also encourages bi-partisan cooperation, with a focus on what is desirable for replacement legislation. There are also fewer potential red herrings than when laws are individually repealed, because of the reduced ‘temptation’ to use individual repeals as proxies for unrelated partisan battles.

The second element involves the nature of the replacement legislation, through limiting executive discretion. Too many regulations come into being not just because legislators can be busy-bodies. Laws often grant widespread discretion to executive politicians and bureaucratic department heads to create regulations. Both are in keeping with a wider trend: executive powers create new rules without going back to legislatures (and the public) for approval.

We may be in an exciting era for deregulation, though we are arguably only in the early stages. City and local authorities are the most underexplored on the issue of unnecessary regulatory constraints to economic liberty. New research is emerging showing notably non-partisan reform efforts underway, perhaps given the very real effects of burdensome regulatory regimes on human life and the proximity of local representatives to the people they serve.

Technology is proving an excellent tool for reforms underway in the United States and around the world which demonstrate liberating economic freedom from death-by-regulation is possible.

Garreth Bloor is a vice president of the IRR, the oldest classical liberal think tank in South Africa. He served as a former executive politician in the country and is the founder of a venture capital firm. Bloor currently resides in Toronto.

READER COMMENTS

Thaomas

Dec 20 2018 at 1:44pm

The low scores on the world bank doing business rankings does create a presumption that many regulation have greater costs than benefits, that should be the criterion, rather than a less is better rule of thumb

michael pettengill

Dec 20 2018 at 3:10pm

Does eliminating regulations increase costs?

Or does hiring more workers at higher pay reduce costs?

Building codes come mostly from the property insurance industry as a way to cut costs. Eg, rather than increasing insurance premiums to cover the costs of replacing property, building codes require insurable property be built to prevent causing hazards or to withstand external hazards.

In Florida, one old town was wiped out, Mexico Beach, while a few buildings built to Miami building code standards suffered limited damage, building codes Florida implemented after a couple of hurricanes wiped out thousands of buildings. The Miami code was not State wide to cut costs.

Is it cheaper to rebuild every building ever 30-50 years with thousands of building being rebuilt in a few years by lots of workers temporarily in the area getting premium wages, or pay workers to build stronger buildings over time. Is it cheaper to pay to build stronger buildings, or pay high insurance premiums every year, or to expect government to bailout those who don’t pay construction workers up front or prepay for paying workers to rebuild.

Zoning often exists to cut taxes from Levittowns being built in a tax zone. Those developments included minimal investments in roads and other infrastructure. After the houses were built and hundreds to thousands of families moved in, roads were congested, water and sewer over taxed, schools over crowded, and the residents of a century were hit with big tax hikes which drove them out of their family homesteads.

Regulations that force developers to pay up front for all the infrastructure needed per family make the housing so expensive only the rich can live there, and old farmstead housing is assessed at higher prices, and taxed more because nearby new housing sells for really high prices to cover building new infrastructure.

Is your liberty increased when economists succeed in eliminating zoning and the roads to your home become congested and the new voters vote for higher taxes to fix that and other problems these new voters create by distant builders picking your neighborhood to add new voters to? Minneapolis will test the liberty benefits of eliminating single family zoning.

Note, I live in NH where zoning was to limit the number of “rich” white people from Massachusetts coming into all white working class towns, ie earning Mass high tech wages to NH mill factory wages. NH has a rich aging population in need of young cheap workers who will not give birth to babies, but give birth to college graduates. Children cost too much, and high tax States charge out-of-state tuition lower than NH in-state tuition, so NH kids leave for college and don’t come back.

I might benefit from the costs savings of cutting your pay, but you will see my benefit as a much bigger cost to you.

Dec 21 2018 at 12:01am

Economies are zero sum. Cutting costs means cutting incomes.

If that were true, it would be impossible for per capita income or wealth adjusted for inflation to increase over time. If on average people can become wealthier, than it’s obvious there must be a source for creating wealth which doesn’t involve someone else losing it.

Around the world, new wealth is routinely created and people are made better off individually and collectively.

Your premise is flawed, as it doesn’t match the empirical reality of the world around us.

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